IBM (IBM, Financial) reported its first-quarter earnings on Monday after the closing bell as technology companies begin to gain earnings attention in the Dow Jones Industrial Average.
For IBM, artificial intelligence is one of the main focuses for innovation; however, in the sector overall the movement to cloud systems is a key trend along with Internet of Things technology and mobile connectivity.
In the first quarter of 2016 IBM provided a new structure for its business results which greatly increases the transparency of the firm’s financial reporting. Discussed in February at an investor presentation and reported on Monday the firm’s new business differentiation is likely to help investors more readily gain insight into the strategic initiatives IBM has been focusing on and how they are helping to improve business growth.
IBM’s new business reporting divisions include the following:
Overall, for the quarter, revenue was down 5%. Adjusted earnings per share of $2.35 were 19% lower than the comparable quarter while reported GAAP earnings per share of $2.09 were 14% lower.
Despite the quarter’s lower comparable revenue and earnings results, management continued to remain optimistic about the firm’s key strategic initiatives which include cloud, analytics, security, social and mobile technologies. Revenue from these strategic initiatives was 17% higher from the comparable quarter with $7 billion in revenue. In the first quarter IBM’s focus on cognitive solutions and its Watson business was also highly profitable. In cognitive solutions IBM generated revenue of $3.98 billion with pretax income of $1.01 billion and a total gross profit margin of 82%. Watson solutions, security and analytics are the key components of IBM’s cognitive solutions business and will continue to be a main focus.
Technology services and cloud platforms are also a second area of focus for IBM that will now be more transparent for investors given the new reporting structure. In the first quarter of 2016, IBM reported revenue of $8.42 billion in technology services and cloud platforms. According to IBM, over the last 12 months the company has generated $10.8 billion in cloud revenue helping it to be the largest cloud provider.
While the business continues to show varied growth across its business segments, investors can still look to IBM for industry innovation and increased shareholder value. Despite slow year-over-year business growth the firm continues to generate substantial free cash flow for shareholder investment. In the first quarter of 2016, IBM reported free cash flow of $2.3 billion with $14.3 billion in free cash flow for the previous 12 months. In the Dow 30 technology sector, IBM leads the industry in dividend yield with a trailing 12-month dividend yield of 3.41%.
In an interview with CNBC following the company’s earnings report, Chief Financial Officer, Martin Shroeter discussed the quarter’s results providing greater insight into the company’s future direction and outlook for shareholders.
Disclosure: I do not own any shares of any stocks included in this article.
